Expect increased state, local IT spending

With a stable economy and tax revenues exceeding expectations, state and local information technology spending is expected to swell from $50 billion to $72 billion by 2011, according to Input's latest market forecast.

Jim Krouse, acting director of Input’s public-sector market analysis, said IT spending will be especially pronounced in 2007 and 2008 as governments try to pass previously stalled IT initiatives. After that, increases will be more gradual, he said. Input estimated the total state and local market compounded annual growth rate at 7.5 percent.

Krouse outlined several market trends, such as centralizing IT spending to increase efficiency and consolidate operations, outsourcing noncore government competencies, and conducting cost-benefit analyses and measuring outcomes of IT spending.

Several states, including Virginia, Maryland and North Carolina, have formed investment review boards to assess large IT projects. No such boards existed as recently as two years ago, Krouse said. IT review boards often have chief information officers, chief financial officers and lawmakers from Democratic and Republican political parties as members, he said.

“You can call it too many cooks in the kitchen," he said. "But on the other hand, it reduces uncertainty and questions about large IT initiatives."

Although Input is still analyzing data to better understand how state and local governments plan to spend their IT dollars, Krouse said spending is likely to be an iterative process. For example, state governments might not invest in enterprise resource planning, he said, but they might plan to consolidate payroll functions first and human resources and other functions later.

Krouse said state and local officials most likely would be focused on health care spending, particularly on Medicaid, because it constitutes a large portion of a state’s budget. Officials will try to achieve efficiency by modernizing systems and integrating informational databases, he said.

State and local governments will also spend tax dollars to modernize tax and revenue systems to gain efficiency and increase revenues.

Spending on homeland security appears to be at the bottom of their lists, perhaps because state and local governments see it as more of a federal function, Krouse said. However, there are certain exceptions, such as interoperable communications and integrated justice systems, where officials will target funds.

Governments might also look at integrating eligibility programs – such as child welfare and support, food stamps, unemployment benefits, disability services and other human service and health programs – in various agencies into a one-stop shop for citizens. Krouse said states are increasingly looking toward this integration, which is referred to as social enterprise management, to improve service and reduce fraud.

Beginning in 2008, he said, a large number of retiring IT employees will force governments to outsource IT functions. He also said many governments are unlikely to fill all those vacated positions, which could mean an unprecedented reduction in government workers.